Part of the payment calculation is based on the discount rate, which is a percentage of the total settlement amount. Typical discount rates range from 7% to 29%, and this rate is negotiable. The company buying your structured settlement will also give you the effective rate, which includes the discount rate, charges, and other costs associated with the settlement. Kolpan, Esq, Law Office of Kenneth I.
Many years ago, injured people who obtained settlements received a one-time cash payment. Sometimes the money was spent and was not available for future needs. In the 1980s, another settlement agreement was created in which injured persons could receive periodic payments for a specified period of time or for life. Recurring future payment is known as a structured settlement.
Although both cash payments and structured settlement payments are not taxable, structured settlements became popular for a couple of reasons. Payments were guaranteed, the person receiving future payments could not spend the entire proceeds of the liquidation, did not have to worry about managing, investing or monitoring large amounts of cash, and did not pay income taxes. Although the funds appear to be protected, the guarantee is only as strong as financial sponsors (for example,. The structured settlement recipient cannot own the annuity policy that makes the regular payments, assign the payments to another person, change the payment schedule, or speed up the money.
If a person receiving structured settlements needs cash right away, they can't ask for increased payments or for the annuity policy to be collected. Realizing that some injured people were in urgent need of cash, the companies announced that they would buy structured settlements for immediate money. Companies don't explain that cash payment has a substantial discount. When a person first accepts a structured settlement, they are forgoing an immediate cash payment in exchange for regular future payments.
Future payments appear to be better because the total amount of payments (the payment) is greater than a current lump sum payment in cash. But the money of the future is worth less and less (due to inflation). The crucial number is the present value of the structured settlement. This is the current amount of money needed to obtain the future flow of payments, taking into account inflation and other factors.
For example, one hundred thousand dollars per year received over twenty years is a payment of two million dollars, but the current value of the twenty-year payment is substantially less than two million dollars due to inflation. Accepting a Structured Agreement Eliminates Control and Flexibility. If a sudden financial need arises, the person cannot get an increased payment or sell the structure. People in these situations are at the mercy of companies (factoring companies) that use cash to buy structured settlements.
For immediate cash, the injured person allows the factoring company to receive all future payments. The transaction seems simple, but it is fraught with hidden costs and problems. The factoring company acquires the structured settlement at a price substantially below the present value, perhaps charging excessive fees and without disclosing the rates and terms of the transaction. People with traumatic brain injury who receive structured settlement payments can be easy prey for these factoring companies.
A person with brain injury has the right to resolve their case, to accept a lump sum or a structured settlement payment. If they accept a structure, a person with a brain injury has the right to sell it later for cash right away. However, BEFORE AGREEING to sell a structured agreement, a person with a brain injury must be fully aware of the consequences of the decision. The person must know the terms of the purchase, the legal and financial impact.
It is strongly recommended that BEFORE you sell a structured agreement, you obtain legal representation and financial advice. Otherwise, it could cost you more than you think. Don't include any sensitive or confidential information in a contact form, text message, or voicemail. The contact form sends information via unencrypted email, which is not secure.
Sending a contact form, sending a text message, making a phone call, or leaving a voicemail doesn't create an attorney-client relationship. The Federal Periodic Payment Settlement Act of 1982 made court approval mandatory for all sales of structured settlements to ensure that the best interests of the consumer come first and limit any party from taking advantage of the payee of the settlement. Those who invest in stocks, gold IRAs, and other financial instruments often use a structured settlement company to redeem the fixed-income annuity in which settlements are held for a higher return on investment. However, if the state takes the community property route, the state can divide the agreement regardless of whether the agreement was received, either before or during the marriage.
A structured settlement broker will help a company buy your settlement and you usually get paid for the buyer's services, but sometimes you pay for that service. Structured settlements are carefully regulated through federal and state laws, but this strict regulation should not be considered proof that the sale of your structured settlement will negatively impact your finances. You will find a wealth of information about the structured settlement purchase process on the company's website. Structured settlements can be sold, and there is no established formula or standard for how to sell payments.